A look into the current investment strategy and appetite of high net worth families…

The folks at Money360 wanted to find out where high-net-worth investors, family offices and hedge fund managers plan to put their capital over the next 12 months.

In March, commercial real estate lender Money360 Inc. polled family offices, hedge fund managers, wealth managers and other attendees at the ALTSLA alternative investments conference. The folks at Money360 wanted to find out where the “smart money” is going.

The survey showed that half of the attendees expected to boost their investment in physical assets like real estate and gold over the following 12 months. The same number of people planned to increase allocations in private debt. Meanwhile, 43 percent of the investors envisioned assuming less investment risk during the 12-month period.

Many high-net-worth (HNW) investors and family offices “feel like it’s time to take some chips off the table and put their money in a safer, more secure investment for the next couple of years,” says Evan Gentry, founder and CEO of Ladera Ranch, Calif.-based Money360.

“We’re on a 10-year bull run on real estate values and the stock market,” Gentry adds. “We all know these things cycle. So, even though the economy is still strong and unemployment is low, there’s a sense among many that the best years of the cycle are behind us.”

Money360 is an originator and servicer of commercial real estate loans. Among the borrowers are HNW individuals and family offices. A subsidiary, M360 Advisors LLC, manages portfolios of senior debt investments secured by first-priority liens on income-producing commercial real estate in the U.S.; investors include HNW individuals and family offices. The M360 Advisors fund comprises more than $500 million in assets.

In a Q&A with NREI, Gentry gives his take on the appetite of HNW investors and family offices for commercial real estate investments, pinpoints which real estate sectors are his current favorites and explains why his firm prefers “selective” retail assets.

This Q&A has been edited for length, style and clarity.

NREI: What are you sensing from HNW individuals and family offices regarding their future investments in commercial real estate?

Evan Gentry: We’ve continued to see a very strong appetite to get more exposure to commercial real estate, whether it’s owning properties or investing in the lending side. Most recently, we’ve seen a surge of high-net-worth individuals and family offices wanting to invest on the debt side of the equation because it’s a safer play at this point in the cycle. I think that’s a trend that will continue all the way through to when the cycle really does top out and begins to turn.

I’m a strong advocate of the point that you can make money on every side of the real estate cycle, as long as you’re doing the right thing at the right time. At the bottom of the cycle, you should buy all the properties that you can. But when you get up toward the top of the cycle, where we appear to be today, you’re better to be in a first-lien debt position at low loan-to-value so if the market turns, you have a considerable level of cushion on those loans.

NREI: Your firm works primarily in the office, industrial, multifamily, retail and hospitality sectors. Which of those sectors are you favoring now?

Evan Gentry: We always like multifamily. It’s a very attractive asset class. Class-A multifamily is very highly valued today and may be at its peak in the cycle. A lot of the multifamily we do is class-B multifamily in good markets. Obviously, everybody loves class-A multifamily. But class-A right now is trading at such a high premium that there’s not as much safety as in class-B. Class-B is not trading at the same premium from a cap-rate perspective that class-A is.

We also like office and industrial. Office and industrial make up our biggest bucket of loans. But like many things, these things are geographically specific. We’re not going to do the same type of property in every market in the country. But if we’re looking at the right market, there are some really attractive opportunities.

NREI: Why are you drawn to office and industrial?

Evan Gentry: We’ve just seen good opportunities in industrial and office. We’re opportunistic, so we’re going to move toward the asset class that’s providing the best opportunities for us and that has less risk than hospitality and retail. The changes that are taking place in retail, although they’re hurting some of the retail markets, are actually causing a boom in industrial projects.

NREI: Your company is leaning toward“selective” retail, but not all retail. How do you define “selective” retail?

Evan Gentry: We’re avoiding J.C. Penney-type retail centers. We say no to a lot of the retail that we see, but we’re not saying no to all of it. There are some out there that’ll just say they won’t do any retail because Amazon is putting them all out of business. But there’s a lot of retail, especially experiential retail centers that have anchor restaurants and grocery [components], that makes a lot of sense.